Halifax Inc. is evaluating two financing options to raise $10 million for an expansion project. Halifax Inc.
Question:
Halifax Inc. is evaluating two financing options to raise $10 million for an expansion project. Halifax Inc. can borrow money from a bank and the interest rate will be 8%, or Halifax Inc. can issue one million common stocks for $10 per share.
The company currently has 2.5 million common shares. |
Without the new financing, the projected income statement of Halifax Inc. is shown below.
Determine the EPS for both options and break-even EBIT between the two financing options.... given this, if Halifax Inc. expects an EBIT of $7.4 million in 2017, will it be beneficial to increase leverage?
Sales Revenue 30,253 |
Operating Expenses 14,740 |
Earnings from Resort Operations 15,513 |
Administration 2,719 |
Marketing/Promotion 941 |
Miscellaneous 302 |
Earnings before Interest, Depreciation & Amortization (EBITDA) 11,550 |
Depreciation 2,682 |
Amortization of Goodwill 324 |
Earnings before Interest & Taxes (EBIT) 8,543 |
Interest 2,718 |
Earnings before Taxes (EBT) 5,826 |
Taxes @ 38% .... 2214 |
Net Income 3,612 |
Dividends 1,047 |
Increase (Decrease) in Retained Earnings 2,564 |
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella